VAT Rate Likely to be Cut Today
24/11/2008
According to several government sources, Alistair Darling will unveil a raft of tax cuts later today in his pre-budget report, the most profound of which will be a drop in the vat rate.
The cut in vat will be 2.5% at the most, as EU regulations prevent the rate to be any lower than 15%. But even so, this measure would cost the government an estimated £12.5 billion annually. No UK government has ever cut the vat rate before, but it is being deemed necessary by the Treasury in order to provide the necessary stimulus for consumers to start spending again. It is probably the most direct method available to the government to bring down prices immediately, or at least before Christmas.
But the question is, of course, whether it will be enough to save Britain's High Street. Many retailers already slashing prices by up to 25% are quite rightly questioning whether a £2.50 drop in every £100 will really be felt.
Other tax cuts could well include the scrapping or postponement of plans to increase the corporation tax for small companies. There may also be a postponement of plans to lift the rate of vehicle excise duty.
An attempt could be made to stem the flow of multinationals leaving Britain because of the government's policy on taxation of foreign dividends. Alistair Darling may well make a tax announcement that will calm the nerves of financial directors and end the uncertainty over this contentious issue.
A grace period for struggling mortgage-holders may be brought in. This will prevent repossession proceedings from kicking in for a minimum time period, perhaps three months, after mortgage repayments have ceased.
Gordon Brown is also planning to round up other European leaders to co-ordinate an EU-wide move to replicate his government's tax-cuts.
The government's plans to cut taxes have come under heavy fire from the Conservatives, who say that a 'tax bombshell' will be created. By this they mean that large tax rises will need to be put into place in the future to make up for the shortfall inevitably caused by tax cuts now.
The cut in vat will be 2.5% at the most, as EU regulations prevent the rate to be any lower than 15%. But even so, this measure would cost the government an estimated £12.5 billion annually. No UK government has ever cut the vat rate before, but it is being deemed necessary by the Treasury in order to provide the necessary stimulus for consumers to start spending again. It is probably the most direct method available to the government to bring down prices immediately, or at least before Christmas.
But the question is, of course, whether it will be enough to save Britain's High Street. Many retailers already slashing prices by up to 25% are quite rightly questioning whether a £2.50 drop in every £100 will really be felt.
Other tax cuts could well include the scrapping or postponement of plans to increase the corporation tax for small companies. There may also be a postponement of plans to lift the rate of vehicle excise duty.
An attempt could be made to stem the flow of multinationals leaving Britain because of the government's policy on taxation of foreign dividends. Alistair Darling may well make a tax announcement that will calm the nerves of financial directors and end the uncertainty over this contentious issue.
A grace period for struggling mortgage-holders may be brought in. This will prevent repossession proceedings from kicking in for a minimum time period, perhaps three months, after mortgage repayments have ceased.
Gordon Brown is also planning to round up other European leaders to co-ordinate an EU-wide move to replicate his government's tax-cuts.
The government's plans to cut taxes have come under heavy fire from the Conservatives, who say that a 'tax bombshell' will be created. By this they mean that large tax rises will need to be put into place in the future to make up for the shortfall inevitably caused by tax cuts now.
